Flávio Bolsonaro's team studies spending curbs worth up to 250 billion reais as investors bet on a runoff win

Senator Flávio Bolsonaro won the first round of Brazil's presidential election on October 4 with 47.03% of the vote. President Luiz Inácio Lula da Silva took 45.16%, The Rio Times reported. The two will meet in a runoff on October 25. On October 5, the Ibovespa rose 7.70% to 206,911.89, and the central bank's reference exchange rate strengthened 4.6% to 4.9859 reais per dollar, The Rio Times reported. Bloomberg reported a record $2 billion inflow into Brazilian stocks after the result.

The rally assumes a fiscal adjustment, and Bolsonaro's team has started to describe one. His economic team is studying a package to contain the federal government's mandatory spending, aiming for an initial adjustment of about 2% of gross domestic product (GDP), or roughly 250 billion reais, Folha de S.Paulo reported. The options include changing the rules that adjust pension, health and education spending each year. Those rules are the main reasons Brazil's budget grows automatically.

Some of the existing framework is hard to change. The Centro de Cidadania Fiscal, the group that drafted the original version of Brazil's recent consumption-tax reform, argues that not even a constitutional amendment can repeal it, Folha reported separately. The group says the reform's foundations are now tied to the constitution's unamendable clauses, so any candidate who promises to revisit them is promising something impossible.

Others read the result differently. The Guardian reported that Bolsonaro's advance alarmed climate campaigners, who expect weaker enforcement in the Amazon. The paper described Lula's camp examining why his record in reducing deforestation did not produce votes for him.